A stock market correction is a normal part of the stock market’s cycle of ups and downs, but it could set your portfolio back by at least 10% if you’re not prepared.
Today, we’re going to show you the three best stocks to own to protect your money from a market correction…
Bear markets occur when indexes drop more than 20%.
While it’s impossible to predict the exact timing of a stock market correction or crash, the soaring Dow has investors wondering when the next correction will be.
While the Dow is up over 200% since March 2009, it’s seen four setbacks of 10% or more in that time period. But it’s been nearly two years since the last 10% drop – that one ended on January 2016 – and the Dow is up over 33% since then.
And that’s not the only reason investors are wise to prepare for a possible correction, even as the Dow continues its rise…
Why We Could See a Stock Market Correction in 2017 or 2018
A rising Dow is great news for investors, but there are signs stocks could slow down.
First, the U.S. Federal Reserve is raising interest rates and could hike rates for a third time in 2017.
The Fed slashed interest rates after the 2008 stock market crash in an effort to boost the economy. Between 2007 and 2008, the Fed cut rates from over 5% to 0.25%, its lowest interest rate ever.
The Fed’s idea was that low interest rates would encourage businesses to borrow money and grow. The Fed was partially right. Publicly traded companies borrowed $1.9 trillion between 2009 and 2016. But instead of using the money to expand their businesses, these companies repurchased $2.1 trillion of their own stocks, boosting stock prices.
That’s part of why the Dow is up more than 200% since March 2009, but corporate profits are only up 100% in that same period.
Second, stocks may be overvalued now.
The Shiller P/E (price/earnings) ratio is one of the best measures of stock market valuation. Right now, the ratio is at 30, which is 80.4% above its historical average.
For comparison, the ratio rose to 27.4 before the 2008 stock market crash. The only other times the Shiller P/E ratio soared higher was in 1929 and 2000. The stock market crashed in both years.
That doesn’t mean the stock market is going to crash. It doesn’t even mean there will necessarily be a market correction in 2017. But well-informed investors know that the market can correct at any moment.
Fortunately, owning resilient stocks in essential industries can protect your money from a correction…
Protect Your Money from a Market Correction with These 3 Stocks
Money Morning Chief Investment Strategist Keith Fitz-Gerald thinks investors should hold on to stocks in the “Unstoppable Trends.” The trick to making huge profits is to find “must-have” companies that fall into these six “Unstoppable Trends”: medicine, technology, demographics, scarcity and allocation, energy, and war, terrorism and ugliness (also known as “defense”). The Unstoppable Trends are backed by trillions of dollars that Washington cannot derail, the Fed cannot meddle with, and Wall Street cannot hijack.
By owning well-run companies in these “Unstoppable Trends,” you’ll own resilient stocks that will charge out of any market downturn, leaving behind anyone who sold off stocks for other assets. And if the market doesn’t correct, these stocks are still going up.
That’s why we’re bringing you three of our favorite stocks from the “Unstoppable Trends.”
Raytheon Co. (NYSE: RTN) is our play for the trend of war, terrorism, and ugliness.
Raytheon is a leader in the defense industry with billions in contracts with the U.S. government and other countries across the world. That means if the market falls, Raytheon is going to continue to excel over the long term.
Raytheon has billion-dollar contracts with the U.S. government, but it also has a diverse customer base. International customers make up just under half of its business. That means even if a few countries cut defense spending during an economic downturn, RTN still has plenty of other customers to help it weather the storm.
But RTN’s real allure as an Unstoppable Trend pick is the fact that war is a reality of the world. For instance, as tensions rise abroad, the United States is more likely to need more weapons and equipment. When the United States launched a missile strike on a Syrian airbase on April 7, Raytheon’s stock jumped more than 2%, since its missiles were used.
RTN currently trades at $181.41 a share and pays a 1.76% dividend yield. RTN is up 27.2% this year.
Becton, Dickinson and Co. (NYSE: BDX) is an example of a play in the Unstoppable Trend of demographics.
BDX is a healthcare company specializing in one-time use medical products used in hospitals and long-term care facilities. That means as populations age, more people will need this type of medical care, and BDX will be in even more demand. People will need healthcare whether the market falls or not.
But BDX is also an exceptionally well-managed company. It has a 10.54% profit margin and maintains a 1.58% dividend yield, even after a $12.2 billion takeover of CareFusion two years ago. That means the company’s capital management is sustainable and will easily survive a market downturn. And that’s good news for its shareholders during a stock market crash.
BDX trades at $199.67 and pays a 1.46% dividend yield. BDX is up 20.65% year to date.
Microsoft Corp. (Nasdaq: MSFT) is a leading company in the Unstoppable Trend of technology.
The reality is that technology is here to stay; individuals and businesses across the world rely on it to function. Microsoft is a well-managed company and is a leader in the tech industry. That means MSFT will bounce back after a downturn.
Microsoft is also constantly innovating to stay on top of the tech world. Businesses and individual consumers are increasingly relying on cloud storage to manage their daily lives. And Microsoft’s new Azure cloud platform is poised to fend off its rivals by integrating Microsoft software, something CEO Satya Nadella calls “software as a service.” So even if the market dives, Microsoft services are still going to be in demand. Its Azure cloud computing service is now the second-largest cloud service in the world.
MSFT trades at $73.53 a share and pays a 2.12% dividend yield. MSFT is up 18.28% on the year.
— Money Morning Staff
Source: Money Morning